International Expansion Strategy Gains Traction

Ascendis revenue up 39% and profit up 41% as international expansion strategy gains traction

Health and care brands group Ascendis Health has continued its strong growth trend since listing on the JSE, increasing revenue by 39% to R3.9 billion in the year to June 2016 as normalised headline earnings increased by 37% to R336 million.

Shareholders will receive a total dividend of 21.5 cents per share, an increase of 13%.

The financial performance for the year was impacted by once-off transaction costs of R143 million relating to two international acquisitions which will only be accretive after year-end from August 2016. Operating profit, excluding these transaction costs, increased by 41% to R529 million.

Chief executive officer Dr Karsten Wellner said the strong increase in revenue and normalised profits was driven by organic growth and supported by the acquisitions concluded over the past year, including its first international acquisition of a 49% stake in Spanish pharma business Farmalider.

“Ascendis is focused increasingly on international growth from its base in South Africa and successfully integrated Farmalider into the Ascendis pharma division. Farmalider performed well ahead of expectations and contributed revenue of R439 million and profit after tax of R55 million to the group,” he said.

Ascendis’ foreign revenue, which is mostly generated in hard currencies, increased by 233% to R861 million, accounting for 22% of the group’s total sales.

The largest acquisition in the past year was the R345 million purchase of local pharmaceutical business Akacia Healthcare. In the three months since being acquired Akacia has performed to expectations and was successfully merged with the Ascendis pharma business. Akacia produces and sells South Africa’s market leading Reuterina probiotic range as well as cold and flu brands Sinucon and Sinuend.

In August 2016, shortly after the financial year end, Ascendis completed the R7.3 billion acquisition of Cyprus-based pharmaceutical manufacturer Remedica Holdings and leading European sports nutrition business, Scitec International.

Following these acquisitions Ascendis is now the second largest listed health company in Africa. The group’s market capitalisation has grown to R12.4 billion from R3.9 billion in July last year.

Dr Wellner said the acquisitions of Remedica and Scitec will be transformative for Ascendis, creating sizeable European and developing market platforms to support international growth and expansion. “Approximately half of Ascendis’ sales will in future be generated in US Dollar and Euro, providing a natural hedge against Rand volatility and weakness,” he said.

Remedica develops, produces and sells over 300 generic pharmaceutical products primarily in emerging markets and has five manufacturing facilities in Cyprus. Remedica has a strong pipeline of specialty generic drugs, particularly oncology and HIV, which are expected to be launched over the next three years.

Scitec is one of the top three leading sports nutrition brands across Europe, manufacturing over 300 products for functional fitness, strength training and well-being. The acquisition provides a platform for international expansion in the sports nutrition and wellness sectors, while accelerating offshore opportunities for Ascendis sports nutrition brands Evox, Supashape and SSN.

Discussing the prospects for the 2017 financial year, Dr Wellner said the integration of Remedica and Scitec present significant synergy opportunities through product manufacturing, cross-licensing of pharmaceutical dossiers and new routes to market in Europe and in developing markets.

“Our international acquisitive growth strategy will focus mid-term on purchasing platform companies for the wellness, medical devices and phyto-vet businesses in Eastern Europe and emerging markets. We will also seek bolt-on acquisitions for Remedica and Scitec,” he said.

Ascendis has a healthy acquisition pipeline in South Africa, with a focus on brands with existing exports or the potential to grow exports.

“New product development and innovation remain key to maintaining our competitive advantage in the health and care markets both locally and internationally. However, our top priority is to integrate and extract synergies between our great South African business and its brands, and the two new exciting platform acquisitions in Europe,” said Dr Wellner.